(Podcast) IEA chief economist Fatih Birol has told lastoilshock.com that the agency will review its use of resource estimates from the United States Geological Survey, in a move that seems certain to prompt a major downward revision of its long term oil production forecast.

Amid a growing consensus that global oil production will peak by around the end of this decade, the International Energy Agency’s forecast that world output will reach 116 million barrels per day in 2030 has looked increasingly isolated, particularly now that its latest Medium Term Oil Market Report – produced by a separate forecasting team – predicts an oil “supply crunch” in 2012.

As I report in The Last Oil Shock, a major weakness of the long term IEA oil supply model is that it relies in part upon resource estimates from the USGS World Petroleum Assessment, published in 2000, which are now demonstrably over-optimistic. For the USGS numbers to come good the world would need to discover 22 billion barrels of oil per year between 1995 and 2025. But as the USGS has now acknowledged, so far the world has only discovered 9bn bbls per year – a massive 60% less than forecast. Even if the rate of oil discovery were now to plateau at that level for the next two decades, the USGS resource numbers would still be 500 billion barrels too high. But since oil discovery has been in long term decline since 1965, despite rising oil prices and advancing technology, it is rather more likely that discovery will continue to fall and the USGS numbers prove yet more astray.

Speaking at the Oil & Money conference in London, Mr Birol listed a number of major uncertainties affecting the oil production outlook, including doubts about the true rate of decline in the existing oil production base. It was critical to understand this issue better, he said, because for every $4 invested upstream, only $1 is needed to meet demand growth, while $3 goes to making good production declines. As a result the IEA would conduct a major review of decline rates to be published in its World Energy Outlook 2008.

In an interview with lastoilshock.com Mr Birol went on to reveal that the IEA would also review the oil resource base afresh, and would be “addressing the limitations and uncertainties” of the USGS data. The Agency would also incorporate other sources of information to assess the “implications of different type[s] of data on our long term thinking”.

Given the widely-acknowledged over-inflation of the USGS figures – the Survey recently slashed its estimate for East Greenland from 47bn barrels to 9 billion – it is likely the IEA’s reappraisal will prompt a major downward revision in its long-term production forecast. And this in turn will undercut the generally sanguine view held by many IEA member countries such as the United States and Britain.

The UK position – recently reiterated on the Prime Minister’s website – is that “the world’s oil and gas resources are sufficient to sustain economic growth for the foreseeable future”. The British government has never conducted its own study of when oil production will peak and has always relied on the IEA to justify its stance.

The IEA will publish the 2007 edition of its World Energy Outlook on Wednesday 7th November, but the impact of its reappraisal will only be evident with the 2008 edition to be published next year.

Mr Birol’s remarks were made on the sidelines of a two-day conference at which both Shokri Ghanem, head of Libya’s National Oil Company, and Christophe de Margerie, chief executive of Total, said global oil production was unlikely ever to exceed 100 million barrels per day.

NB Some listeners have reported problems with lastoilshock.com podcasts using Quicktime, but they seem to play perfectly well on RealPlayer and Windows Media Player.

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7 Comments on “IEA reviews reliance on USGS resource estimates”>

Tony Says:October 31st, 2007 at 11:52 pm

Finally, the IEA will begin to produce more realistic production forecasts based on a field by field basis for all countries! Next, the USGS needs to make more realistic estimates of recoverable oil reserves.

Like the IEA, OPEC also relies upon the USGS estimates for its forecasts as stated in OPEC’s recent World Oil Outlook 2007 page 24: “A central tenet of the OPEC long-term supply perspective assessment is that resources are sufficient to meet future demand. The resource base, as defined by estimates from the US Geological Survey (USGS) of ultimately recoverable reserves (URR), does not constitute a constraint to supplying the rising levels of oil demanded in the reference case.” In other words, OPEC forecasts the oil demand future and assume that the oil forecast will be equal to the oil demand!

The IEA’s reference case of 116 million barrels/day production in 2030 is far too optimistic in light of not only de Margerie and Ghanem’s comments but also the forecasts below.

My own view is that oil production is now at a peak plateau which will last maybe to the end of 2009. This is supported by the following three forecasts made in October 2007:

This raises a number of questions – how will the IEA handle the biggest administrative error of the century (Oops – we made a small mistake – we missed the point that the world is in / will probably soon go into a period of a long-lasting gap between intrinsic need and supply of liquid fuel, which ideally we should have forecast 20 years ago. Will they now give credibility to scenarios which are conservative (low oil), or will they find this too difficult to swallow. I will hope for the best, but the commercial experience is that a requirement to a change realistic changes of forecast requires a new CEO.

Mr. Birol’s interview gave me the impression that he is currently applying upside down logic, that as a good response to global warming issues requires a lower oil usage, ergo there will be lower oil availability. Perhaps this is also how OPEC will fudge the issue.

I happily predict that the we are entering into a period of sustained global ‘blaming someone else’, for the forecasting failure.

On the demand side, it will be interesting to see if the IEA 2008 report also makes a serious and credible attempt to look at how the last few years of high oil prices will impact the next few years of intrinsic global oil demand. The 1979-1985 oil supply constraint and price shock, reduced US oil consumption to a lower level, which did not grow back to the pre 1979 level until about 1995, even though oil became fully available at a low price as from mid 1985.

Looks like Gordon Brown is about to find out that the ‘foreseeable future’ is a remarkably short period of time!

DrBalthar Says:November 1st, 2007 at 6:43 pm

I don’t know what should scare me more. The rising speed of official voices suddenly telling the truth or the imminent impact it will have on all of us! Well most all of us in the northern hemisphere at least.

Christopher, my numbers are taken from An evaluation of the U.S.Geological Survey World Petroleum Assessment 2000, by T. R. Klett, Donald L. Gautier, and Thomas S. Ahlbrandt, published in AAPG Bulletin, v. 89, no. 8 (August 2005), pp. 1033–1042. This evaluation was partly based on IHS numbers at that date, but 2006 and 2007 may come in higher if IHS credits the Jack and Tupi fields with the amounts of oil claimed by the companies.

[…] to warn the OECD of threats to oil supply, has relied on the USGS databases. (Although this now appears to be under review). A senior IEA official has even warned the Guardian of undue American influence in denying peak […]

[…] spreading. The IEA now appears to be reviewing their practice of relying on the USGS for oil data [19]. A senior IEA official has even warned the Guardian of undue American influence in denying peak oil […]

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